All right. This is Puneet from JP Morgan Computer services and IT consulting team. Glad to have here with us Mr. Bharat Desai, Syntel’s Founder and Chairman. Welcome Bharat.

Question-and-Answer Session

The format of this presentation is going to be fireside chat. I’ll ask a few questions and then we’ll open up for questions from the floor. So Bharat, for the benefit of investors who may not be as much close to Syntel story, could you talk about what Syntel does for its clients, who these clients are and how do you differentiate in the marketplace?

Bharat Desai

Sure. Thank you, Puneet. Syntel is in the technology services industry. And within technology services, we are in the outsourcing business for operations and technology. And the services we provide to our large global customers include application development, application management and Knowledge Process Outsourcing.

This is a large and highly fragmented industry, we compete with, on the one hand, very large global companies IBM, on the other hand, several very small niche players. And our key value proposition to our customers is our DNA of innovation and our flexibility and adaptability and a real strong focus on strong customer service.

Puneet Jain - JP Morgan

One thing you have talked about in the past is investments in domain accelerators and investment implementation frameworks. Could you share what exactly these accelerators are and how much investments you have done in building these?

Bharat Desai

I’ll address both the parts. We made a strategic decision to go to market by industry. And the first step there was to build industry expertise through training, through hiring people with industry expertise and requiring ongoing certification in each of the industries that we serve. That program has gone really well. And as we got deeper into our strategy, we came to the realization that we could actually help our customers by making investments in tools and frameworks that could help them speed up their implantation cycles, improve the quality of our deliverables and their outcomes and overall, increase reliability and time to market.

And these pan almost every area that we serve our customers in, including data warehousing, business intelligence, testing, mobile application development, social media application development, cloud migration, cloud managements. Each of these areas, we’ve stepped up our investments. We file several patents and copyrights every month. And it’s very clear that this strategy is been embraced quite well by our customers.

Puneet Jain - JP Morgan

And who owns building these frameworks, like who is responsible for the, is there a dedicated group within the company which builds this or is it more like the delivery people who are closer to clients who do that job?

Bharat Desai

Great question. We have several business units. They are both industry focused business units as well as competency focus business units. So, each of the business units owns developing these frameworks and these tools.

Puneet Jain - JP Morgan

Staying on this investment theme, there has been like a lot of chatter about like cloud, social media, mobility and analytics, and these, we think, are one of the big trends in IT overall technology space. So can you talk about what you’re doing for your clients in those areas?

Bharat Desai

All of these areas are game changing. And our customers, all our customers are grappling with two key aspects. One is, how do they embrace these technologies and with the potential they have, and the need for them to serve their customers very differently going forward. And the second aspect is, how do they bring down their run the business cost.

So think of it as bringing down the run the business cost, and then investing in change the business. And all our accelerators, frameworks, domain investing is now converging to help our customers to exactly this.

Puneet Jain - JP Morgan

And what’s typically the mix of to run-the-business versus change-the-business in client spending right now?

Bharat Desai

I think today there’s probably customers are trying to figure out how do they free up dollars for change-the-business. So our focus is, how can we help you bring down the run-the-business cost and free up dollars where we can help you with change-the-business.

Puneet Jain - JP Morgan

And is there any kind of work that you would prefer of these two given run-the-business will be more sticky and core, while change-the-business might provide upside?

Bharat Desai

Well both, we focus on what is important to our customers. And both, having a very efficient run-the-business engine as well as a change-the-business mechanism that prepares the organization for the future are both critical to our customers. So we focus on both.

Puneet Jain - JP Morgan

You have heavily invested in India based delivery centers with huge facilities in Pune and Chennai in India. But recently you set up a center in Philippines which was first non-India offshore location for the company. Can you talk about what was our rational need for the Philippine center?

Bharat Desai

Sure. We have, again this is in response to what we believe is going to be our customer’s future needs. Customers over time have expressed a desire to have some kind of diversification strategy in their off shoring. And we looked at various locations, looked at the different attributes that each location offers. And Philippines as you know has a very large English speaking population similar to India. A large population of highly educated people. They are culturally quite well aligned to the U.S. And then in particular in the healthcare industry they have a fair degree of expertise. So we thought that, that combination provided a good set of pluses for us to venture and open a center there.

Puneet Jain - JP Morgan

And should we expect more non-India based centers from Syntel, specifically in the U.S. and many other vendors are trying to ramp up their onsite delivery capabilities?

Bharat Desai

So you know we already have several proximity centers in the U.S. And we will continue to expand on those as the need of the business evolves. The biggest challenge obviously with the U.S. centers is finding qualified locals and nationals who are capable and competent in staffing those.

Puneet Jain - JP Morgan

Moving on to a topic which is on top of every investor’s mind; impact of this immigration bill on Syntel’s and offshore IT services business. Can you talk about like how the various provisions in the bill will impact Syntel?

Bharat Desai

Well it is probably premature to speculate how each of these provisions will impact us and the industry, since we are at a very preliminary stage of the legislative process. The important thing to keep in mind is that the earliest impact in the industry and to Syntel will be October of 2014. We have already filed our necessary visas by April of 2013. Those would be granted by October of 2013 and that would serve us for the three to six year period of that visa validity. So depending on what the final form of this bill is, we are pretty comfortable that because of our flexible model whatever the final form of this bill is, we will be able to adapt and do what is most important which is serve our customer’s business needs.

Unidentified Audience Member

Given on your earnings call I think you talked about that approximately 65% of onsite headcount is on visas. Can you just give us like a rough idea, like how many of them are on H visas versus L visas, given they have more ratios around H rather than around L? Just rough like very 50-50?

Bharat Desai

Yes I am not sure if we have disclosed that information in the past but so.

Puneet Jain - JP Morgan

Or I will ask, I will try one more time different way, are you an H-1B dependent employer?

Bharat Desai

An H-1B dependent in.

Puneet Jain - JP Morgan

It is like 15% of U.S. headcount is on H-1B visas.

Bharat Desai

I do not know if we have disclosed that either, no, I am sorry? Okay, I guess we have, and the answer is yes. We do certainly have more than 15% of our U.S. work force that’s visa dependent, yes.

Puneet Jain - JP Morgan

Are you seeing or do you expect any discussion from clients trying to move business away from offshore IT services firms, given the uncertainty of the bill?

Bharat Desai

I think our customers are all large global companies. They are very sophisticated. They understand the legislative process really well. Their business is quite dependent on the whole offshore service and global delivery. So far we have had no reaction from the part of customers in that direction at all.

Puneet Jain - JP Morgan

And that’s consistent with what we are also hearing. And what are your clients telling you about this bill, as in, like the impact of this bill on their own business? Because one hope is, that clients might also lobby against the bill given it might disrupt some of their businesses. So do you expect that? Are you hearing that from your clients?

Bharat Desai

I think they are all taking a wait and see attitude of you know what ultimately develops. These companies are all very sophisticated. They understand regulations really, really well. They understand the impact of regulation on their business. This whole service delivery model has significantly benefited American companies as you know. The American companies have been, large American companies have been the most aggressive users of global delivery. So I am confident that at the right time they will see it fit to weigh in with their opinions.

Puneet Jain - JP Morgan

Moving on, talking about demand; on your recent call, you seemed like bullish about the near term demand environment. And indicated that you are seeing discretionary spending in insurance and retail and other six verticals. Can you talk about current demand environment and how does that compare with that of last year.

Bharat Desai

I would say there is clearly more firming up of demand, and customers who were in a wait and see mode, or in somewhat of a holding pattern waiting for the outcome of the elections, now understand what lies ahead and have started moving forward and committed, starting to commit to their strategic initiatives

Puneet Jain - JP Morgan

And you have also talked about like, seeing more work driven by regulatory compliance and regulations, specifically regulations in financial services and healthcare vertical. Does that represent incremental spend in your client budgets or do they stem from savings elsewhere?

Bharat Desai

I think industries that are impacted by regulations such as financial services, insurance, healthcare; I think just as a matter of course have regulatory compliance as part of their budgeting process. So it’s sort of business as usual for them in responding to any kind of regulatory demand or regulatory need for compliance.

Puneet Jain - JP Morgan

So do you expect some of these regulatory projects to continue next year or they’re more like this year project and will run off and ?

Bharat Desai

I think, again each industry will be different and then different sub-segments within the industries take a different approach as well. But I would say that the combination of compliance, change-the-business, and focus on getting savings from run-the-business represent a healthy pipeline for Syntel.

Puneet Jain - JP Morgan

And you’ve experienced very solid growth rates in your top clients over the last few years. Can you talk about, is you engagement model with large clients different from small? Obviously I assume like you or Prashant spend more time with large clients. But in the way you engage like sell the business, sell your sources, or provide the service any different at large clients related to what it is like smaller accounts?

Bharat Desai

I would say our client engagement process is really very, is quite similar in each of our industries and with each client. And I’d say about the only difference is when you have a much larger relationship there are more occasions to interact, as they define their strategy and the working relationship is much closer.

That said, our clients 3 to 30, are all very large sophisticated global companies. We have very low penetration in terms of their spend. And we're quite confident that with the initiatives that we are putting in place, we will see stronger engagement with those clients as well.

Puneet Jain - JP Morgan

So Syntel's growth in those smaller accounts, 3 to 30, will that stem from winning shares from one of one of their existing vendor, or you think like the overall buy for offshore in those accounts will increase?

Bharat Desai

I think that's a great question. It will probably be a combination of the customer moving more of the run-the-business to an outsourced model. In many cases, there is a process to look at different service providers and see if somebody brings more value, especially when contracts are up for renewal. And again a combination of make run-the-business more efficient, help change-the-business and adapt to regulatory change, I think represents very good opportunities for our business.

Puneet Jain - JP Morgan

Understood. I will ask one more and then we will open questions from the audience. Can you comment on pricing environment?

Bharat Desai

Sure. I think pricing has been relatively stable to maybe modestly up; pretty much across different industries.

Puneet Jain - JP Morgan

There are some concerns that some of the larger offshore forms might be cutting prices to reignite their growth rates. You seeing any of that; any pricing pressure from that; seems like you are not.

Bharat Desai

We have not.

Puneet Jain - JP Morgan

All right, any questions from the audiences.

Unidentified Audience Member

I want to know a little more about your U.S. workforce, I’m not even sure how many employees you have in the U.S., but if you had to adapt to new regulations, how tough is it for you to find talent in the U.S.? Can you talk to your ability to hire local workers to the extent that you might need you to backfill?

Bharat Desai

Yes, one of the reasons Syntel looks overseas to bring in talent into the U.S. is that there really is a dearth of talent in the U.S., and has been for a number of years. So, that problem cannot be fixed in the short run but we are confident that whatever the final regulation is that's passed, we will find a way to adapt our business model and effectively service our clients.

Unidentified Audience Member

How many U.S. employees do you have?

Bharat Desai

I think U.S. employees overall is about 3000, 2500.

Unidentified company representative

I am sorry, we haven't specifically broken out U.S. headcounts, but have shared that on a billable headcount basis, about 20% is.

Bharat Desai

20% roughly; so roughly 20% of our billable headcount is in the U.S.

Unidentified Audience Member

Can you spend a little on the same topic, can you spent a little bit of time just talking about the flexibility within the existing contracts? And so regardless of what happens here if something does pass, it does seem like there is going to be incremental costs whether its H1B or L1 filing fees or if it's hiring or finding more U.S. citizen headcount. So, if you are on a three or a five year fixed cost or the cost plus or a timing materials type contract, how much flexibility do you have to push through those incremental costs to clients in an existing deal?

Bharat Desai

That’s a good question. On the time and material, most contracts are duration of anywhere from a year to three years. And each contract has different terms, but overall, I would say once we know what the impact is, we would have to sit down and figure out how we adjust to the new reality. And based on that we would respond and take actions to a) meet the needs of our customers and b) meet the needs of business.

Unidentified Audience Member

I guess may be a little more specifically, are there clauses in these contracts that say, if it’s a cost plus that, this is what we are budgeting out for our costs and this is what our onshore, offshore mix looks like, and if there are unforeseen cost that come up we do have the ability to push that through or are they little restrictive than that?

Bharat Desai

I would imagine that this is an unexpected development. So everybody understands this is very different. And there will probably ensue a lot of discussion on what the final arrangement ends up being.

Unidentified Audience Member

And when you think about onshore plus offshore mix, it seems like most of the vendors are in the roughly the same spot on an aggregate basis. And it’s gotten to the point where we all have just sort of accepted that mix. And I don’t know if we are at the stage now as a supplier if this is just an industry convention or if this is the mix that, it needs to be with 20% on site and 80% offshore, how much room do you think there is that to flex that onshore offshore mix, if things sort break the wrong way on the regulatory side.

Bharat Desai

Again, a great question. So if you look at our operations business, KPO business, we run that 100% offshore. And I will tell you that the KPO business is much harder to run than the IT business because it’s a real-time you know you got to make decisions on the spot. So given that, I would say, there is an opportunity to change that mix on IT services and quite possibly one of the unintended consequences of any regulatory change.

Unidentified Audience Member

So if on the IT side, if you had to, because of the potential regulatory change take a meaningful portion, or increasingly move more of it offshore, could that have the consequence of, and your relationship impact with your customers, just from having you know that on site presence? I mean do you foresee that could be one issue if you are forced to move increasingly offshore?

Bharat Desai

That’s the new reality that everybody has going to have to deal with and react to once it happens. And once that happens, we will have to determine what’s the best way we can serve our customer’s needs. We understand how dependent their businesses are and their ability to serve their customers are; it is on this whole global delivery model. So I am confident that we would evolve a model that meets the relationship needs, that meets the service needs and meet the delivery needs of our customers.

Someone with the slightly longer prospective, 15 years ago our customers were telling us offshore was just not possible. So I share that prospective with you to just share that those views do change.

Unidentified Audience Member

If your customers and the customers in the industry witness 10% to 15% wage inflation on U.S. IT employees, there is probably a likely scenario given the skill shortage. How do you think, knowing your customers, they’ll react? Do you think they will send a lot more offshore or they are going to bite the bullet and pay a lot more for the IT services delivered here in the U.S.?

Bharat Desai

I don’t know the answer. So we will have to wait till we know for certain what the new regulation is. And I think at that point everybody will have to make a decision as to how best to respond to the needs of the business. But having said that, customers typically look for can you do this better, faster or cheaper for me and in most cases adapted to a solution that provides that, as we have seen over time.

Puneet Jain - JP Morgan

Let me ask one more on the same topic. So, irrespective of the outcome of this bill, do you think offshore IT services industry, not just Syntel, entire industry might decide to lower its dependence on visas given the uncertainty or the headwinds it might bring in future?

Bharat Desai

Yes, the only challenge Puneet is, there's just no talent to hire in the U.S.

Puneet Jain - JP Morgan

Sort of like maybe by increasing offshore, talking to clients and we might see like a shift in the business model irrespective of the way the this bill is.

Bharat Desai

Again, once we know what the rules are everybody will do their best to adapt to the rules to serve their customer’s needs. That's what we will do and be responsible in reacting to the needs of the business.

Unidentified Audience Member

You're probably one of the few vendors that has experience with JV structures and it's not clear to me and I know you don't want to spend too much time commenting on hypotheticals, but I don’t know if JV structures are going to be a part of the future if this legislation does pass? And maybe you can vouch some U.S. workers that are our clients, but I was wondering if you could maybe talk about the pros and cons of working inside of a JV?

Bharat Desai

You know we have one relationship that was structured with some and designed with some very specific needs of our customers' business and our business and that relationship has worked exceedingly well. And you know, it's possible that as a new regulatory environment comes up, there'll be other instruments or other options for responding to those changes.

Unidentified Audience Member

Aside from that one customer, does JV structures ever come up in any other conversations with current or perspective clients?

Bharat Desai

They do occasionally. You know, there's a significant overhead to managing a new entity as well. So that has to be factored into what the ultimate relationship ends up being structured.

Puneet Jain - JP Morgan

To change the topic a little bit; so offshore growth rates are in low to mid-teens over last couple of years. Would you say that this is the new normal for offshore growth assuming like no impact from this immigration bill? Or do think growth rates can accelerate from these levels?

Bharat Desai

Yes, I think what you've seen, first of all the industry overall over the last decade has grown significantly. So when that happens growth rates do tend to taper off. We've had some additional factors such as the financial crisis, the Euro zone. And we have seen that there's increased interest on the part of European firms to adopt to this model we've seen as I've said earlier companies more interested in getting efficiencies from run-the-business and investing that in change-the-business. So when you factor these three attributes, it's quite possible that the growth rates could pick up.

Puneet Jain - JP Morgan

Understood, and your margin profile, like it’s Syntel's like operating margins have been very volatile and one of the reasons is you try not to manage your margins. But have you thought about, has there been discussions in the company to manage margins within a narrower range?

Bharat Desai

So you know, we report GAAP results as they come out. We run the business the best way we know how and report the results. You know there is volatility because of foreign exchange rates typically and I think most investors are sophisticated enough to be able to factor the impact of foreign exchange fluctuations in the business. And you know we're pleased with how our overall business has performed, and how our customers perceive our service to them, how our employees have responded to the fast changing business environment with the great IP that we’ve created.

Puneet Jain - JP Morgan

Okay, any last questions. All set.

Bharat Desai

Thank you very much indeed.

Puneet Jain - JP Morgan

Thank you, Bharat.

Bharat Desai

Thank you all for attending.

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